Replying to Sarika Kodag and Yash Ved of IIFL, Swati Kulkarni says, “The investment side of the economy is yet to see strong traction, which is expected to be driven first by the Government spending followed by participation of private sector.”
Are you seeing a recovery in the Indian economy? Do you expect a pick-up in spending?
We believe Indian Economy is undergoing a gradual cyclical recovery. The macro economic variables such as Current Account Deficit, Inflation, IIP growth, Interest rate, Fiscal Deficit, Indirect Tax collection all are showing improvements over the levels of 2013. The investment side of the economy is yet to see strong traction, which is expected to be driven first by the Government spending followed by participation of private sector. The multiplier effect of investment spending on boosting consumption is likely to help India to achieve higher sustainable GDP growth. The IMF had lowered its 2015 growth projection to 3.3% from 3.5%, largely driven by reduction of growth forecast of US and other Developed Markets. China growth also is expected to slow down and Russia is expected to remain subdued. The volatility in global financial markets and particularly in emerging markets, is likely to persist given the concerns about China - growth slowdown; devaluation - as well as the pace and timing of interest rate action by the US Federal Reserve.
What do you make out of current equity market movements?
The range-bound market movement of last year reflects the underlying muted earnings growth. The asset quality issues, slowing rural consumption, slow economic recovery and falling commodity prices have caused such performance. In addition, the FIIs flows also have been lackluster although MF experienced strong inflows. The current expectations of earnings pick up in the second half of FY16, hinges on the recovery in consumption on account of lower inflation and interest rates, and the momentum gathering in the budgeted capital spends from the Government, besides a favorable base of second half of FY15. The companies are likely to show gross margin expansion on account of falling raw material costs, which coupled with operating leverage benefits and interest costs savings, is expected to lead to higher earnings growth.
What is your investment strategy in UTI Mastershare? Which are the sectors you are most bullish and bearish on?
UTI Mastershare predominantly invests in large cap companies (whose market capitalization is in top 70% of overall market capitalization). It follows top down approach for sector allocation and bottom up for stock selection within the sectors. It follows growth investing style. We have invested in stocks where we believe earnings growth potential is higher, thus it has a dominant mix of quality cyclical as well as quality defensive stocks. We are overweight on domestic cyclical sectors like Cement, Construction, Industrial Manufacturing, and Private sector Banks and also in defensive sectors like IT and Pharma. We are not very constructive on metals and reality sector from a long term perspective.
How is UTI Mastershare Unit Scheme performing as it is India’s first diversified equity oriented fund? Does it meet investor’s goals?
UTI Mastershare, the first diversified equity fund of India has created a unique track record of declaring dividend every year for the last 29 years since its inception in 1986. It has been consistently outperforming the benchmark BSE 100 and the peers (category average) which reflect in the ranking of the Fund. The Fund has remained true to its positioning and has delivered as per the expectation.
What is your investment philosophy as one of the leading women fund managers in the country? How has it changed over the years since you have managed many Funds?
My investment philosophy revolves around investing in the stocks that have sustainable cash flows; competitive advantage, strong management track record, respect for corporate governance and conservative accounting policy. Such companies tend to conduct business efficiently across economic cycles, delivering higher return on capital than the cost of capital. A constant review of the valuations helps in deciding on staying invested/ booking profits.
While the broad philosophy remains same across the funds, the positioning of the Funds require us to build portfolio that suits the investment framework. For e.g. UTI Mastershare follows a large cap growth style and focuses on top down approach whereas UTI MNC follows a Multicap bottom up approach.
We book profits regularly on such stocks where we believe that the future capital appreciation potential is limited considering the estimated earnings growth and valuation or according to our analysis we believe that they may underperform in the near term. We do not take very aggressive bets on a single sector or on too many outside benchmark stocks. We limit single stock’s weight to 8% and single sector’s weight to 30%.
What is your advice to retail investors?
Equity asset class is smartly played by investing in the equity MF schemes as you get a professional team to manage your portfolio at a small charge. For an individual to achieve diversification by buying 50-60 stocks and tracking them regularly may be a herculean task that too may be with compromised results. Thus, it is advisable to invest large part of the equity allocation into equity mutual funds. A pyramid approach may be followed with 50-60% of the equity allocation going into large cap funds, 20-30% allocation for mid cap equity funds and the rest can be invested in thematic, sector equity funds.
In terms of mode of investment, disciplined approach of regular investing through monthly SIP of long tenure will be helpful to build corpus over long period. However, many retail investors are heavily invested in fixed income assets. They can use lump sum investment option to improve their asset allocation as also start SIP such that the returns that they get on their investments beat inflation in the long run and create wealth for them.